The financial crisis that began in 2007 was set off due to the liquidity deficit in the United States banking system which consequently led to the collapse of a number of large financial institutions across the world. UK was one of those countries that was badly hit by the recession and is still recuperating from its effects. All banks around the world responded to the crisis by astonishingly cutting down on their interest rates. The investment banking sector in the UK was booming before the recession had hit the world. But the commencement of the financial crisis has brought down with it the investment banking sector from its peak which it enjoyed right from the 90's till when the recession had struck.
This research will be focussing on the investment banking sector and the effect the recession has had on it and what are the issues faced. There will be a comparison made between what was its previous state and way of functioning in the pre recession period to what has changed now during the recession. This would be followed by a discussion of the measures different companies are taking to get over it so as to make a comeback to its normal functioning. Research will be done as to what financial experts have to say about the recession and its likely end date and the scope of the financial industry in this period of turmoil. It has to be seen if this industry can once again make that big leap or will it suffer in the long run as the IT sector has after the IT bubble burst in 2000.
Literature Assessment:
A huge amount of research has been done on the economic development in UK in the past few years taking into consideration the challenges faced by the financial institutions and the country as a whole during and post recession (Athey, 2009). Kapoor et al (2009) analyse the reasons for the recession to have occurred at this stage and give suggestions as to what could be done for a gradual recovery. Bagella and Ciciretti (2009) advocate constant monitoring so as to avoid facing new volatilities of banking securities and state that policy makers generally tend to underestimate the effects of a crisis and hence more focus is required on savings in the financial market.
Hall (2009) on the other hand draws a contrast between the older generation of financers and the power of the contemporary investment bankers who have emerged as the ones who model the way financial actors that are linked with structured and securitised products form transnational networks. Nocera (2008) gives a clear insight of the credit crisis that began in the US and its effects on the investment banks in Walls Street and its repercussions in the UK banking sector.
Jaffee and Perlow (2008) have proposed to apply the principles of the laws followed by existing commercial bank holding companies in order to separate the obligations of investment banks from the risks borne by their investment portfolio. This requires a new legislation that would be equivalent to the existing Gramm-Leach-Bliley Act of 1999 that is followed. This enables an investment bank to be owned by a well capitalized commercial bank. As per their proposal, the investment bank would be allowed to continue carrying out both the trading and derivative counterparty activities. Apart from this, the added advantage that the new legislation brought with it was that the new legislation reduced the potential of heavy losses occurring for the derivative counterparty obligations that may have sprung while trading the investment bank portfolios which ran at a higher level of risk. In this way, regulation and market discipline together will help protect the financial system's infrastructure, and simultaneously eliminate the unnecessary regulatory burdens. Research in this context will be based on a detailed systematic review and evaluation of these literatures along with a comparison being made as to how the industry consultants respond in the interviews. An evaluation of both these data will help come to a conclusion as to how soon will the recovery of the investment banking sector and moreover the financial services industry take place in the UK.
Research Questions:
The research revolves around the investment banking industry in the UK. First, the investment banking industry prior to the recession will be assessed. The recession hit the UK in mid 2008 (Gow, 2008) and the Bank of England responded by cutting the interest rates by up to 0.5 percent points as the governments had begun to adopt various stimulus packages so as to help find a way to recover from the recession. Investment banks deal with securitization as a means of providing "structured finance" services (Langley, 2006). Research performed so far has failed to appreciate the role of 'structured finance' services in the development of securitization. This explains to some extent the dawn of the credit crunch as the financial support provided by the investment banks was unable to inhibit the credit risk that was caused by the subprime mortgages. Goddard et, al, (2009) reinforces the importance of rebuilding bank liquidity and capital, alongside strengthening supervision and regulation of banking services, and improving risk evaluation and risk management practices across the banking industry. The "Waterfall Structure" created by the investment banks which a network of socio-cultural technological practices is the key technology that lies behind securitization (Wainwright, 2009).
Due to the recession, investment banks made certain amendments in the way they operate. The idea is to gather what were the revisions made in the manner in which they worked. Did they cut down on their investments? How did they change their approach towards handling their clients? Did any of their clients perform poorly than the rest? How did they help them? These are the questions that would be raised in a more appropriate and precise manner so as to gauge how their business was hampered if at all due to the recession. And if it has been, then to what extent and by when do they hope and aim at recovering back to their original stand which they maintained prior to the recession.
Proposed Method:
4.1 Research Strategy:
The research strategy to be followed is comprised of several stages and it refers to basic orientation of the way research is conducted (Saunders et al., 2007). The first stage is already complete which is to find a concise topic to conduct a research upon. The next step is to perform a thorough literature review to collect background information which is an ongoing process. This can be done using journal articles, internet sources, various periodicals, weekly newsletters to get latest updated actions, etc. This will form the base depending upon which further analysis needs to be performed.
The second step will be a set of well defined, precise questions which will be framed for the structured interviews and accordingly a questionnaire will be sent across to the participants. Structured interviews are the best way of collecting data as it avoids the misinterpretation due to a mismatch in the reading comprehension of the different respondents (Campion and Hudson, 1994). This needs to be taken care of while conducting questionnaire based surveys. The responses of these will be analysed and evaluated against the secondary data that is obtained from the literature review. The data may match or differ and accordingly a sound conclusion will be made.
During the entire research process, data protection and integrity will be taken care of so as to keep the data acquired from the companies confidential and avoid any misuse.
4.2 Research Design:
The research design refers to a framework based on which data is collected for analysis and interpretation so as to come up with results (Bryman and Bell, 2007). The entire dissertation work plan can be divided into three main stages: the initial research, the analysis and interpretation of data collected and finally drafting the results. The initial research will involve the literature review which will comprise of both the literature of the core finance subject issues and the research methods literature. Following this the questionnaire will be prepared based on the data to be collected. The questions should be concise and to the point so as to eliminate any misinterpretation of the questions by the participants. An approximate sample size of 20 would be considered. The results obtained will be analysed and evaluated so as to come to a conclusion using tools for statistical analysis. At the same time, research performed in this area currently and in the past will be considered and a comparison will be made so as to see if the results are in cohesion with what has been observed. Based on the results, a concrete conclusion will be reached.
4.3 Access Issues:
The research revolves around the investment banking industry in the UK. Hence the research will be based on the investment banks in UK. Several consultants from various different investment banks across UK will be approached and asked for their inputs regarding the scope of the banking industry in general and more specifically about the investment banking industry and the effects of the recession on this sector. Investment consultants from companies like Brewin Dolphin Co., JP Morgan, Barclays and few others dealing with investment banking will be interviewed and asked for their opinion on the current investment banking scenario and their views on the outcome of the recession and when it is likely to end. Though there are a number of investment banks in the UK all cannot be approached due to time constraints and also the fact that the hectic work schedules of financial analysts do not permit them to participate in such research case studies.
4.4 Proposed Work Plan:
The various stages in the plan need to be completed in a specific sequence and need to be carried out according to a pre defined schedule. The schedule is designed as shown in the Gantt chart below:
Gantt chart showing the task schedule from March to July:
As shown in the Gantt chart above the proposed start date for the research is stated as the 29th of March 2010. The entire dissertation plan has been broken down according to the different stages that will be followed through the course of the research. Adequate time has been allotted to each task and each of the tasks have been scheduled in such a way as to take care of any delays that could occur due to other assignments or getting late responses from the participants. Also, constant review of the work completed as on each completion date will be done so as to ensure timely completion. Any lags will be taken care of by adding additional hours of work in the day. An approximate estimate of seven hours of constructive work on each day allotted has been made.
No task has been scheduled during the period from 24th of April till the 25th of May as during this period, exams and other assignments have been scheduled. If there is any lag in any of the tasks to be completed before this break period they can be completed during this period to avoid future delays. The evaluation and interpretation of data has been scheduled towards May end so as to allow enough time for the responses to be received from the participating company consultants. Once the data is processed using SPSS and other statistical analysis tools, the draft can be started. Each of the tasks wherein the chapters are to be written enough time is allotted so as to allow time for any review and updation. This would save time during the final review while preparing the first draft.
The plan has been formulated till the first draft is ready and sent for review to the supervisor on the 1st of July. After review the required changes as per the supervisor's comments will be incorporated in the final draft which will take place in the month of July.
4.5 Ethical Issues:
Ethical issues are bound to occur at a number of stages while performing research. The primary data gathering will be conducted using a qualitative research methodology through questionnaires and structured interviews with the consultants of different financial institutions. These institutions have some confidential constraints due to which they may not be willing to be open about their processes and practices followed within the organisations. Thus, keeping the data integrity and privacy constraints in mind the information received from the individual companies will be kept anonymous.
Maintaining anonymity of the respondents is very vital as it may cause harm to their career prospects (Punch, 2006). In this context, some of the data that needs to be analysed is confidential to each of the organisations and so the integrity of the data needs to be maintained. Leaking out such company specific data could put the respondent's career in that company at stake. Thus, the consultants who respond through questionnaires and interviews will be kept anonymous and also the names of the companies will not be let out. The designation of the respondent and the level of the organisation to which the respondent belongs to, will be mentioned. These issues could be addressed by applying the "anonymity" policy to the participants of the survey and sign an "agreement of confidentiality" with the companies participating (Bryman and Bell, 2007).
A high standard will be maintained in the methods of data collection and prior to participating in the research process the participants will be given a clear idea about why the research is being carried out so as for them to make a decision of taking part in the research process or not (Bryman and Bell, 2007). The respondent cannot be compelled to participate in the research study at any stage.
4.6 Limitations:
There are no major limitations identified in the research methodology. However, one drawback identified is that the primary data needs to be gathered from financial consultants who work as part of major financial institutions and banks; and considering the on-going recession and the workload that comes with it, there might be a delay in the primary data gathering phase of the research. Though, this can be taken care of by formulating a precise and well defined set of questions to be asked during interviews or by means of questionnaires so as to avoid taking too much of their time. Apart from this there could be some kind of hesitation on the part of the interviewees to give accurate details due to company specific confidentiality issues and policies to abide by.
Another concern is the sample size. There are over 100 well known investment banks in the UK and each may have a different opinion about the recession and its effects on the financial industry. Even the financial consultants within a single firm may have varying views. In such kind of a situation considering a sample size of 20 may seem too small. But at the same time aiming at 100 investment banking companies across UK within a time span of three months would be too optimistic and at the same time it does not seem feasible. Most of the times, it is due to time and cost constraints that a compromise is made and a small sample size is selected (Bryman and Bell, 2007). Though it is said that increasing the size of a sample thereby increases the precision of the results, it needs to be ensured that the sample size is absolute and not relative. A large sample size does not guarantee an exact precision (Saunders. et al., 2007). Thus it shows that increasing the sample size has a probability of increasing the precision of the researched sample. Fowler (1993) argues that it is difficult to predict the amount of precision at the start of any research and deciding the sample size based on the level of precision required is not realistic.
The other limitation is that of non-response. While conducting structured interviews or self completion questionnaires there is a possibility that some of the respondents may refuse to participate due to various reasons like privacy issues, etc. There has been an observation of an increase in non response and moreover in refusal to participate in research based surveys (Bryman and Bell, 2007). Also while considering the response rate, it needs to be ensured that all the respondents are suitable or appropriate for answering the questionnaire. To avoid a further decrease in the sample size due to non-response, a larger number of respondents than the estimated sample size need to be approached. This would not let non-respondents if any, affect the research precision.
4.7 Proposed Data Handling:
The primary research data collected through qualitative research methods will be handled safely so as to avoid any alteration, deletion, loss or unauthorised access which may cause any harm to the source (respondent) (Greiner, 2002). This is a vital aspect as the research data needs to be stored and organised safely through the research period and disposed off in a secure approach once the research is completed. Data integrity will be ensured as the data is confidential and specific to companies. Also, once data is gathered and statistical conclusions are made, at each stage backup copies will be maintained so as to prevent any loss of data.
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